Ownership and Bank Efficiency in Africa: True Fixed Effects Stochastic Frontier Analysis

35 Pages Posted: 21 Apr 2021

See all articles by Ibrahim Siraj

Ibrahim Siraj

Long Island University-Post

Andreas Stephan

Jonkoping University, Jonkoping International Business School

Samuel Mutarindwa

Jonkoping University - Jonkoping International Business School (JIBS)

Date Written: February 15, 2021

Abstract

This paper investigates the effects of ownership patterns on bank cost and profit efficiencies taking a sample of 607 commercial banks operating in 53 African countries during the period 2005-2015. Using pooled and modified true fixed effects (TFE) stochastic frontier panel approaches, we obtain two principal results. First, foreign-owned banks are more profit and cost efficient than their domestic peers. Second, privately owned banks outperform state-owned banks. These findings result not only from bank-level inefficiency but also from differences related to other bank- and country-specific factors. Specifically, larger, older, and listed banks with many years of operations in host countries are associated with higher cost and profit efficiency. This study also reveals that ownership concentration (blockholding) has adverse effects for the profit and cost efficiency of banks.

Keywords: ownership, blockholding, efficiency, stochastic frontier analysis, fixed effects

JEL Classification: G21, G28, G30, G32, G38

Suggested Citation

Siraj, Ibrahim and Stephan, Andreas and Mutarindwa, Samuel, Ownership and Bank Efficiency in Africa: True Fixed Effects Stochastic Frontier Analysis (February 15, 2021). Journal of Financial Stability, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3830749

Ibrahim Siraj (Contact Author)

Long Island University-Post ( email )

United States

Andreas Stephan

Jonkoping University, Jonkoping International Business School ( email )

SE-551 11 Jonkoping
Sweden
55111 (Fax)

Samuel Mutarindwa

Jonkoping University - Jonkoping International Business School (JIBS) ( email )

Sweden

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